LLC Eurochem North-West-2 -v- Tecnimont SpA & another [2024] EWHC 2444 (Comm)
The English Commercial Court has confirmed that, subject to any express provisions in an arbitration agreement that provide otherwise, applications in support of English-seated arbitrations must generally be brought in the English courts as the courts of the seat of the arbitration unless: (a) for practical reasons, the application can only sensibly be made elsewhere; and (b) only then provided that the proceedings are not a disguised attempt to outflank the arbitration agreement.
The background facts
The underlying contracts related to the construction of a fertiliser plant in Russia. The contracts were governed by English law and provided for disputes to be resolved at ICC arbitration in London. Pursuant to the contracts, the defendant contractors were obliged to procure on-demand bonds naming the Russian claimant company as beneficiary. The bonds provided for English law and exclusive English court jurisdiction. The various bonds were issued by Russian, Italian and French banks.
Disputes arose as to the performance of the contracts, resulting in the claimant purporting to terminate the contracts. The defendants contended the termination was invalid. Those disputes are being dealt with by way of ICC arbitration.
The claimant also sought to claim payment under the bonds. The defendants were unsuccessful in seeking an order from an emergency arbitrator to restrain the claimant from making that claim under the bonds. Nonetheless, the Italian and French banks declined to honour the bonds, contending that it would be unlawful for them to do so pursuant to EU and domestic sanctions legislation against Russia. The claimant challenged this assertion.
The claimant believed that the defendants might seek to commence proceedings in Italy or France to prevent payment under the bonds. Therefore, it obtained an interim anti-suit injunction (ASI) from the English Court and subsequently sought a final ASI to restrain any such proceedings. The claimant relied among other things on the fact that the defendants had in the past sought and obtained a temporary restraining order from the Italian courts preventing claims under bonds being paid out to another company in the claimant’s group.
The defendants objected to continuation of the ASI, because they wished to preserve their right to apply to the Italian and/or French courts to prevent the banks from honouring the bonds. They argued that:
- They were not parties to the bonds and therefore not bound by the exclusive jurisdiction agreement in the bonds;
- The arbitration agreement in the contracts permitted the defendants to seek conservatory relief in any court, not merely the courts of the seat of arbitration; and/or
- Even if this were not correct, the French and/or Italian courts were more appropriate to resolve the issues that arose in this case.
The Commercial Court decision
The Court noted that while the defendants were not bound by the exclusive jurisdiction agreement in the bonds, there was no dispute that the enforceability of the bonds came within the scope of the arbitration agreement. The issue was whether the defendants could seek relief in courts other then those of England and Wales.
The arbitration agreement did not prohibit applications for interim relief to state courts and did not expressly provide that such applications could only be made to the courts of the seat of arbitration. Further, the ICC Rules, which were expressly incorporated into the arbitration agreement, expressly permitted such applications in defined circumstances.
Having reviewed the authorities, the Court concluded that the courts of the seat of arbitration were the natural forum for granting interim injunctions, especially where the curial law of the arbitration was the law of the seat. The jurisdiction of a court other than that of the seat could be given, but only in exceptional and narrow circumstances, for example where assets were located in another jurisdiction and it was appropriate to seek to secure or freeze those assets in aid of the arbitration proceedings.
That being so, the permissory terms of the ICC Rules were merely the starting point for deciding whether proceedings in a court other than the English Court should be permitted and whether an ASI seeking to prevent such proceedings should be granted or maintained. As to whether the defendants had demonstrated that they were entitled to rely on the narrow exception to the general principle, it was not sufficient to assert that payment out under the bonds would contravene sanctions regulations even if this were correct.
The governing law of the contracts and the bonds was English law and the English Court could decide whether, as a matter of English law, the banks could resist payment under the bonds on any ground other than fraud e.g. because payment was unlawful under applicable sanctions regulations. If the banks chose to argue that performance of the bonds would be unlawful in the place of performance, being France and Italy, then the English Court could also resolve that issue with the aid of expert evidence on French and Italian law.
Further, if and to the extent that performance was not unlawful, then no legitimate benefit could arise from proceedings in either France or Italy because the courts in each of those countries would be obliged to apply English law so the outcome would be no different. In those circumstances, allowing the defendants to commence proceedings in Italy or France would be vexatious because it would generate extra costs, might result in delay and would distract attention from the conduct of the arbitration.
The Court concluded that the ASI was properly granted, should not be discharged and should be continued.
Comment
The decision usefully highlights that the English Court will not lightly cede jurisdiction to the courts of another state where injunctive relief is sought in support of English-seated arbitration proceedings.
The case is also a reminder of how sanctions-related disputes continue to come before the English courts, both in terms of substantive as well as procedural issues.
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